How to create a financial forecast for a coffee roasting company?
Developing and maintaining an up-to-date financial forecast for your coffee roasting company is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together a coffee roasting company financial forecast then don’t worry as this guide is here to help you.
We'll cover everything from: the main objectives of a financial forecast, the data you need to gather before starting, to the tables that compose it, and the tools that will help you create and maintain your forecast efficiently.
Let's get started!
Why create and maintain a financial forecast for a coffee roasting company?
The financial projections for your coffee roasting company act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability.
To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.
During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis.
Your coffee roasting company's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What information is used as input to build a coffee roasting company financial forecast?
A coffee roasting company's financial forecast needs to be built on the right foundation: your assumptions.
The data required to create your assumptions will depend on whether you are a new or existing coffee roasting company.
If you are creating (or updating) the forecast of an existing coffee roasting company, then your main inputs will be historical accounting data and operating metrics, and your team’s view on what to expect for the next three to five years.
If you are building financial projections for a new coffee roasting company startup, you will need to rely on market research to form your go-to-market strategy and derive your sales forecast.
For a new venture, you will also need an itemised list of resources needed for the coffee roasting company to operate, along with a list of equipment required to launch the venture (more on that below).
Now that you understand what is needed, let’s have a look at what elements will make up your coffee roasting company's financial forecast.
The sales forecast for a coffee roasting company
From experience, it is usually best to start creating your coffee roasting company financial forecast by your sales forecast.
To create an accurate sales forecast for your coffee roasting company, you will have to rely on the data collected in your market research, or if you're running an existing coffee roasting company, the historical data of the business, to estimate two key variables:
- The average price
- The number of monthly transactions
To get there, you will need to consider the following factors:
- Competition: The number of competitors in your area can greatly impact the average price of your coffee and the number of monthly transactions. If there are many other coffee roasting companies in your area, you may need to lower your prices to stay competitive, which could lead to an increase in sales. However, if you are the only coffee roaster in the area, you may be able to charge higher prices and have a lower number of transactions.
- Quality of Beans: The quality of the beans you use for your coffee can greatly affect the average price and number of monthly transactions. If you use high-quality, specialty beans, you may be able to charge higher prices and attract customers who are willing to pay more for a premium product. However, if you use lower-quality beans, you may need to lower your prices and may have a higher number of transactions to make up for the lower quality.
- Seasonal Demand: The demand for coffee can vary depending on the season. During colder months, people tend to drink more hot coffee, which could lead to an increase in sales for your company. However, during warmer months, people may prefer iced coffee, which could result in a decrease in sales. Keep an eye on seasonal trends to adjust your prices and forecast accordingly.
- Cost of Production: The cost of producing your coffee can directly impact your average price and number of monthly transactions. If the cost of your production increases, you may need to raise your prices to maintain profitability. However, if you are able to find more cost-effective ways to produce your coffee, you may be able to lower your prices and attract more customers.
- Consumer Trends: Consumer trends can have a significant impact on the average price and number of monthly transactions for your coffee. For example, if there is a growing trend towards organic and ethically-sourced products, you may be able to charge higher prices for your coffee if you meet these requirements. On the other hand, if there is a shift towards more affordable and convenient coffee options, you may need to adjust your prices and offerings to stay competitive.
Once you have an idea of what your future sales will look like, it will be time to work on your overhead budget. Let’s see what this entails.
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The operating expenses for a coffee roasting company
The next step is to estimate the costs you’ll have to incur to operate your coffee roasting company.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your coffee roasting company's operating expenses should normally include the following items:
- Coffee Beans: As a coffee roasting company, your main expense will be purchasing high-quality coffee beans to roast and sell to your customers. This includes sourcing beans from different regions, as well as purchasing specialty beans for limited edition blends.
- Staff Costs: You will need to budget for staff salaries, benefits, and training costs. This includes hiring roasters, baristas, and other employees to help with the day-to-day operations of your business.
- Rent and Utilities: Your roastery will require space to operate and store equipment, as well as utilities such as electricity, water, and internet. These expenses should be factored into your budget.
- Packaging Materials: In order to sell your coffee, you will need to package it in bags or containers. This expense includes the cost of bags, labels, and other materials used to package your coffee.
- Equipment Maintenance: To ensure your coffee roasting equipment is functioning properly, you will need to budget for regular maintenance and repairs.
- Accountancy Fees: It's important to keep accurate records of your business finances. You may want to hire an accountant to help with bookkeeping, tax preparation, and other financial tasks.
- Insurance Costs: As a coffee roasting company, you will need to protect your business from potential risks. This includes insurance for your roastery, equipment, and employees.
- Marketing and Advertising: In order to attract customers, you may need to invest in marketing and advertising efforts, such as social media ads, flyers, and events.
- Software Licences: To streamline your business operations, you may need to purchase software licenses for programs such as inventory management, accounting, and point-of-sale systems.
- Transportation Costs: You may need to factor in the cost of transporting your coffee beans from suppliers to your roastery, as well as delivering your finished products to customers.
- Training and Education: To stay up-to-date with industry trends and techniques, you may want to invest in training and education for yourself and your employees.
- Banking Fees: Your business bank account may have fees associated with it, such as transaction fees and monthly maintenance fees.
- Renting Space for Events: If you plan on hosting events at your roastery, you may need to budget for renting event space and equipment.
- Professional Memberships: Joining professional organizations and memberships can help you stay connected with others in the coffee industry and stay up-to-date with industry news and trends.
- Employee Benefits: In addition to salaries, you may want to offer benefits such as health insurance, retirement plans, and vacation time to attract and retain top talent.
This list is not exhaustive by any means, and will need to be tailored to your coffee roasting company's specific circumstances.
What investments are needed to start or grow a coffee roasting company?
Creating and expanding a coffee roasting company also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a coffee roasting company could include elements such as:
- Coffee Roaster: This is the most essential capital expenditure for a coffee roasting company. You will need to purchase a commercial-grade coffee roaster in order to roast your coffee beans. The cost of a coffee roaster can range from a few thousand dollars to tens of thousands of dollars depending on the size and features.
- Green Coffee Beans: Another key capital expenditure for a coffee roasting company is the purchase of green coffee beans. These are the raw, unroasted beans that you will use to create your coffee blends. It is important to budget for the cost of purchasing high-quality green beans in order to produce a desirable and consistent product.
- Packaging Equipment: In order to package and label your roasted coffee beans, you will need to invest in packaging equipment. This can include items such as coffee bag sealers, labeling machines, and scales. It is important to choose equipment that is durable and efficient to ensure the quality and consistency of your packaging.
- Storage and Handling Equipment: As a coffee roasting company, you will need to store and handle large quantities of coffee beans. This may require purchasing storage equipment such as bins, silos, and containers. Additionally, you may need to invest in handling equipment such as forklifts or pallet jacks to move and transport the beans.
- Facility Renovations: Depending on the size and condition of your facility, you may need to invest in renovations in order to create a suitable space for your coffee roasting operations. This could include installing ventilation systems, upgrading electrical systems, or building out a warehouse space for storage.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your coffee roasting company.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The financing plan of your coffee roasting company
The next step in the creation of your financial forecast for your coffee roasting company is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for a coffee roasting company?
Now let's have a look at the main output tables of your coffee roasting company's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your coffee roasting company's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a coffee roasting company should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
Your coffee roasting company's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The cash flow projection
The cash flow forecast of your coffee roasting company will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the coffee roasting company's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your coffee roasting company is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your coffee roasting company's financial plan.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Which tool should you use to create your coffee roasting company's financial forecast?
Creating your coffee roasting company's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial forecasting software to build your coffee roasting company's projections
The modern and easiest way is to use an online financial forecasting tool such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our projection software for free by signing up here.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional coffee roasting company financial projection.
As you can imagine, this solution is much more expensive than using software. From experience, the creation of a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to start around £700 or $1,000 excluding taxes.
The indicative estimate above, is for a small business, and a forecast done as a one-off. Using a financial consultant or accountant to track your actuals vs. forecast and to keep your financial forecast up to date on a monthly or quarterly basis will naturally cost a lot more.
If you choose this solution, make sure your service provider has first-hand experience in your industry, so that they may challenge your assumptions and offer insights (as opposed to just taking your figures at face value to create the forecast’s financial statements).
Why not use a spreadsheet such as Excel or Google Sheets to build your coffee roasting company's financial forecast?
Creating an accurate and error-free coffee roasting company financial forecast with a spreadsheet is very technical and requires a deep knowledge of accounting and an understanding of financial modelling.
Very few business owners are financially savvy enough to be able to build a forecast themselves on Excel without making mistakes.
Lenders and investors know this, which is why forecasts created on Excel by the business owner are often frowned upon.
Having numbers one can trust is key when it comes to financial forecasting and to that end using software is much safer.
Using financial forecasting software is also faster than using a spreadsheet, and, with the rise of artificial intelligence, software is also becoming smarter at helping us analyse the numbers to make smarter decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and keeping your projections up to date as the year progresses is manual, tedious, and error-prone. Whereas financial projection software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Use our financial forecast templates for inspiration
The Business Plan Shop has dozens of financial forecast examples available.
Our templates contain both a financial forecast and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Our templates are a great source of inspiration, whether you just want to see what a complete business plan looks like, or are looking for concrete examples of how you should model financial elements in your own forecast.
Takeaways
- A financial projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your coffee roasting company.
You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for a coffee roasting company. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Also on The Business Plan Shop
- Example of financial projections
- How to project sales for a business?
- Sample financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
